The statistics conclude that Spanish homes are doing well. Ignoring the difficulties of the most vulnerable – their percentage is growing slightly – they report that the average household maintains employment, has experienced a salary increase and has decided that, since interest rates are very high, it is best to pay off the mortgage and not ask for loans.
The result is the lowest level of debt in 22 years and a margin, at least in this area, higher than the European Union average, according to the latest Report on the financial situation of households, prepared by the Bank of Spain and corresponding to the second half of 2023.
Despite the increase in inflation and rate increases, household debt was equivalent to 76.6% of their annual gross disposable income (GDI) in the second part of last year, “at the lowest level since 2002,” says the report. RBD is understood not only as income from work, but also as income obtained from other income, such as dividends and equity, to which contributions and social benefits are added.
This parameter is the one used in the European comparison and also allows the Bank of Spain to conclude that Spanish households are less indebted than the community average, where the ratio is 89%. The difference is twelve points.
“The increase in gross household wealth intensified both due to net asset purchases and their revaluation,” says the Bank of Spain. Housing prices increased 4.5% in the third quarter and individuals have “recomposed their investment portfolios” by increasing the money dedicated to time deposits, Treasury bills and investment funds.
Since bank deposits do not offer much, it seems that many households have chosen to dedicate their savings to lowering their mortgage. “Amortizations have also been high in Spain, which reflects incentives – in a context of high interest rates – to amortize variable rate mortgages, whose proportion in the stock is greater than in the European Union,” he says.
The report also considers that, if debt is falling, it is not only due to the increase in household income and the amortization frenzy, but also because increases in interest rates make financing more expensive and cause individuals to request less credit. .
The key to this encouraging statistical outlook is employment. The institution recognizes this – “family income has continued to be driven by the growth of employment and wages” – and estimates the year-on-year increase in the third quarter of the remuneration of employees at 5%, which is now “around 6% above pre-pandemic levels.”
There has also been a “strong rebound in consumer spending” and, with it, lower household savings, of 2.8 points, to 9.1% of income. “Despite this reduction, the savings rate continued to be slightly above its historical average,” he notes.
Regarding vulnerable households, the Bank of Spain says that “the accumulated increase in interest rates during this cycle would have raised the proportion of vulnerable indebted households slightly.”
By slight, an increase of seven tenths is understood, since, according to their calculations, the percentage of households whose financial burdens exceed 40% of income has gone from 10.5% in 2020 to 11.2% in the third quarter from 2023.
Doubtful loans decreased by 7.1% in the third quarter compared to the same period of the previous year, but loans under special surveillance, which are in an immediately lower risk stage, grew at rates of 10%.
The debt is being amortized, but interest rates also increase the net financial burden. “Households in debt at a variable rate and those that have recently taken out loans have faced higher interest expenses,” warns the bank, which estimates the average cost of household bank debt at 4.6%, compared to the 2.3% from December 2021.
The rate increases have already been practically completely transferred to variable mortgages, of which only 7% remain to suffer increases of more than one percentage point. In other words, and since the forecast is now that rates will tend to fall, in the coming months there could be a reduction in the financial burden.
